How to choose between public sector vs. private sector for contractors

Public vs. private sectors for contractors: What’s the difference?

What’s the difference between the public vs private sector?

There are several key differences between the public and private sectors.

Firstly, the public sector comes under control of government, whereas the private sector is run by individuals and businesses who make a profit.

Because of the remit under which each sector falls under, there are several further differences between the two, including:

  • Goals: as public sector organisations are directly linked to government their goals and objectives are driven by compulsory regulations from local, regional, national or international organisations or bodies. On the other hand, however, private sector organisations usually have more freedom and flexibility over how they operate and what objectives and goals they set themselves. This is because they are not subject to the same kinds of regulations that public sector bodies are.
  • Spending: public sector bodies are held accountable to several different parties that are interested in how they are spending money, meaning their spending is held to more scrutiny. On the other hand, private sector bodies don’t face this level of accountability as they are private organisations and businesses.
  • Transparency: finally, as public sector bodies are controlled by government it is expected that they are always transparent and open with key information, including what they are doing and what they are achieving. Again, however, as private sector bodies aren’t held to this level of accountability they can hold back certain information if they choose to do so.

Those are the key differences between the public and private sectors which will have an impact on the types of contracts available and how the contractor will operate.

So, are there any other factors for contractors to consider when it comes to choosing between the public vs private sectors?

IR35 in the public and private sectors

If you are a contractor it is likely that you’ve heard of IR35.

IR35 is a piece of legislation that came into force in 2007 to stop contractors from operating like employees but calling themselves contractors in order to pay less tax and National Insurance.

Changes to IR35 were implemented in 2017 when it became the responsibility of the client to determine the contractor’s IR35 status. However, this only applied to contractors operating in the public sector.

Following these changes, if the contractor was found to be inside IR35, it was the client that became responsible for deducting their tax and National Insurance contributions from the fee before it was paid to them.

Many of these public sector contractors were wrongly classified as being inside IR35, regardless of their circumstances, meaning many paid more in tax as a result.

Although these contractors had to pay more tax and National Insurance at the same levels as an employee, they did not receive the benefits of being employed.

Furthermore, from April 6th this year, the same rules have been rolled out to the private sector.

So, whereas prior to April 2021, many contractors avoided the public sector in order to avoid getting caught out by IR35, this is a factor that should no longer come into play when choosing between public vs private sectors.

There is, however, one way to avoid IR35 and be free to choose between public vs private sectors – by going umbrella.

For more information on IR35, check out our contractor’s guide to IR35 in 2021.

Considering using an umbrella company?

As an umbrella company employs the contractor, they are automatically exempt from IR35.

This takes away a lot of stress and means that the contractor can choose between the public or private sectors without worrying about getting caught out by IR35.

What’s more, there are several other benefits to operating under an umbrella company.

For example, umbrella contractors receive a range of statutory benefits including holiday pay, sick leave, a workplace pension and maternity/paternity leave.

Umbrella companies also take care of the business side of contracting, such as invoicing the client, chasing late payments, processing expenses and taking care of paperwork and admin.

What’s more, as the contractor is employed by the umbrella company they are paid a salary, meaning their tax is processed and deducted through the PAYE system.

Considering going umbrella? Umbrella Supermarket are here to help

If you have decided that umbrella is the best option for you in light of newly introduced IR35 reforms, Umbrella Supermarket are here to help you find the best umbrella company for your needs.

Our handy umbrella calculator takes just 60 seconds to use. Simply input your details, such as your name, contact information and your contractor daily rate and preferences, and our umbrella calculator will generate a list of the best suited umbrella companies for you.

Whether you are looking to operate in the public sector of the private sector, we can help you find an umbrella company that works for you, to help make contracting that little bit easier.

If you’re ready to see what our umbrella calculator can do for you today simply give it a go yourself.

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To help every contractor make the right decision for them, in this guide, Umbrella Supermarket explains when not to use an umbrella company.

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To bust the myths around HMRC approved umbrella companies and get straight to the facts, in today's guide Umbrella Supermarket look at whether HMRC approved umbrella companies really exist, so you know exactly where you stand.

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How Much are Umbrella Company Costs?

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Choose Between PAYE or Umbrella

How to Choose Between PAYE or Umbrella

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Should contractors choose hourly or daily rates?

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